A Tax Strategy for Individuals with Self-Employment Income and Owners of 1-5 Person Companies Defined Benefit Plans for Small Business Owners Copyright.

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Presentation on theme: "A Tax Strategy for Individuals with Self-Employment Income and Owners of 1-5 Person Companies Defined Benefit Plans for Small Business Owners Copyright."— Presentation transcript:

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A Tax Strategy for Individuals with Self-Employment Income and Owners of 1-5 Person Companies Defined Benefit Plans for Small Business Owners Copyright 2014 Dedicated Defined Benefit Services LLC

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Defined Benefit Plans ─ in the News A Pension Plan for the Self-Employed “Solo pension plans are a great option for entrepreneurs, doctors, and real estate agents who want to slash their taxes and turbo charge retirement savings.” Kiplinger’s Retirement Report, August 2011 High-Income Clients Save More With These Underutilized Retirement Plans “From a short-term standpoint, there’s absolutely nothing that can equal this for me or anyone older with excess income and big taxes...” Financial Advisor Magazine, December 2011 How Entrepreneurs Can Get Big Tax Breaks For Retirement Savings “A 52-year-old entrepreneur netting $300,000 could use a one-person defined-benefit pension plan combined with a solo 401(k) to shelter a total of $169,800 from current income taxes…” Forbes, March 2013 Turn Self-Employment Income Into A Pension By Dec. 31 To Beat The Fiscal Cliff “If you’re self-employed, have had a good year, and want to sock away a lot for retirement, take a lead from a tax pro who advises high net worth clients, and set up a defined benefit plan by year-end.” Forbes Online, December 2012

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Defined Benefit Plans at a Glance  Qualified retirement plan approved by the IRS  Contributions are tax deductible  Highest available contributions and tax deductions of any qualified retirement plan  Contributions are based on: – y our age – income – years to retirement

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Comparison of Retirement Plans Hypothetical Example: Maximum annual contribution limits in 2014 for a business owner age 52, earning $300,000 W-2 income annually, retiring in 10 years Assumes 5-7% funding rate for Defined Benefit Plans Defined Benefit (DB) Plans May Allow Clients to Contribute Significantly more Earned Income than other Retirement Plans

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Defined Benefit Plans are Goal-oriented  Goal or “benefit” represents the amount of retirement wealth the plan will provide annually at retirement age  Benefit is established when plans are opened – Based on age, income and years until retirement – Capped at $210,000 per year (for 2014)*  Employer commits to achieving the goal through regular, annual contributions large enough to meet the goal  Retirement age is typically set at age 62 or older  Plan can be amended to change the goal

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Spouse Has Self-Employment Income  Annual self-employment earnings: $100,000*  DB contribution for 2014: $80,000  Annual tax savings: $30,400 combined marginal tax rate of 38%  DB Accumulation at age 65: $456,400 5 years, 5 - 7% rate of return * High 3-year average, after payment of self-employment taxes Susan, 60, is married to a high-income earning executive, and they don’t need her income to maintain their lifestyle. They want to defer current taxes as much as possible.

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Key Dates  DB Plans must be opened by the end of your fiscal year, for most businesses that will be December 31 st.  The Investment Account will be opened once the Adoption Agreement is signed. If you open the plan before year end, we recommend investing no more than 50% of the assets before you have your final year-end income statement.  The investment account must be funded when taxes are filed but no later than eight and a half months after the end of your fiscal year.

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Establishing a Plan 1.We can run a feasibility proposal for you 2.Bring your accountant into the discussion early 3.Once the plan meets your objectives, we’ll complete a Set-up Questionnaire Send signed Questionnaire to Dedicated DB With Set-up Fee 4.We’ll send you an Adoption Agreement to sign 5.You can begin to fund the investment account